Cement sector’s loss reduces in 2QFY11

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Karachi – The cement sector profitability analysis for the 2QFY11, based on sample size comprises of 17 listed companies, disclosed that losses to the sector have dwindled compared to the corresponding period of last year. In spite of lower cement demand, net loss stood at Rs 794 million compared to a loss of Rs 1,597 million last year, while net sales of the sector have improved by an annual 18 percent as a result of the 24 percent annual increase in average cement price. Although, total cement’s volume for the quarter reduced by an annual eight percent; the industry’s margin got stronger in the 2QFY11.
Of the sample companies, nine companies reported stronger margins driven by a rise in cement price compared to the corresponding period last year, while cumulative losses occurred due to heavy borrowings with rising interest rates. Following the trend, LUCK remained at the forefront, contributing Rs 734 million to net earnings of the cement sector.
In spite of higher operating profit this quarter in comparison to 2QFY10, the cement sector was unable to show positive earnings triggered by a rise in financial costs and taxes expense. Finance costs swelled by an annual 10 percent, while taxes showed a 65 percent annual growth leading to a net loss, stated by the sample. On the other hand, overall volumes were down by an annual eight percent in the second quarter of Financial Year 2011 due to local dispatches (representing 70 percent of the total volumes), falling by an annual 13 percent. Dispatches, contributed by exports, also declined by an annual 17 percent due to a 36 percent reduction in demand from sea route destinations.
Amreen Hirani at Investfinance said that future margins for local manufacturers may be deterred by persistence of cost pressures including higher coal costs, shortage of gas leading to be replaced by a high-priced source of fuel, and the depreciation of Pakistani rupee against the US dollar. Domestic cement demand, which was expected to recoup in the aftermath of the catastrophic floods, is yet to be seen in the local dispatch numbers, he said, adding that an increase in volumes is needed. Therefore, utilisation of spare capacity hinges on domestic economic betterment and thwarting the regional capacity challenge for exports.